2026 Q1 Earnings Call: Contradictions on Arizona II Profitability, Acquisition Strategy, and West Virginia Mill Timelines

Date of Call: Not provided

Financials Results

• Revenue: None provided
• EPS: $1.58 per diluted share, compared to a net loss per diluted share of $1.54 in the prior year period. Adjusted EPS of $1.84 per diluted share, compared to $0.76 per diluted share in the prior year period.
• Gross Margin: None provided
• Operating Margin: Core EBITDA margin of 14.9%, expanded both year-over-year and compared to the prior quarter. North America Steel Group Adjusted EBITDA margin of 17.7% compared to 12.3% in the prior year period. Construction Solutions Group adjusted EBITDA margin of 20% improved by 6.6 percentage points compared to the prior year period.

Guidance:

• Consolidated Core EBITDA in Q2 expected to decline modestly from Q1 levels due to normal market slowdown, partially offset by precast acquisitions.
• North America Steel Group segment Adjusted EBITDA anticipated to be lower sequentially due to normal seasonal volume trends and planned maintenance outages; steel product metal margin expected stable.
• Construction Solutions Group financial results expected to improve vs Q1; precast contribution to offset seasonal weakness.
• Europe Steel Group Adjusted EBITDA expected approximately break-even.
• CMC anticipates spending ~$625M in fiscal 2026 capital expenditures.
• Full-year effective tax rate anticipated between 5% and 10%.
• CMC expects to return to net leverage target below two times within 18 months.
• Goal to exit Fiscal 2026 with annualized run rate EBITDA benefit of $150M from TAG initiatives.

Business Commentary:

Key Theme:* Record Q1 Earnings and Financial Performance: - CMC reported net earnings of $177.3 million ($1.58 per diluted share) for Q1, compared to a net loss of $175.7 million in the prior year period. Excluding certain charges, adjusted earnings were $206.2 million ($1.84 per diluted share), up significantly from $86.9 million in the prior year. - Consolidated core EBITDA of $316.9 million grew by over 50% year-over-year and nearly 9% sequentially, reaching its highest level in two years. Core EBITDA margin expanded both year-over-year and sequentially to 14.9%. - The North America Steel Group's adjusted EBITDA of $293.9 million increased 58% year-over-year, driven by higher metal margins and operational improvements. Construction Solutions Group's adjusted EBITDA of $39.6 million surged 75% year-over-year.

Reasons and Causes:* The exceptional results were driven by a combination of a supportive market backdrop (stable demand, limited imports, rising metal margins) and solid execution. Strategic actions over the past 12-18 months, including the launch of the TAG (Total Asset Growth) initiative, organizational realignment, and onboarding of key talent, were directly driving bottom-line improvement.

Key Theme:* Market Conditions and Outlook: - Underlying demand in North America was described as "healthy" and "stable," with shipments of finished steel virtually unchanged year-over-year and down less than a percentage point sequentially against a typical 4%-5% seasonal decline. - The Dodge Momentum Index (DMI) increased by approximately 50% year-over-year in November, indicating strong future construction activity, particularly in commercial, institutional, and energy segments. - For Europe, conditions softened modestly in Q1 due to import flows, but management views this as a temporary overhang and expects pricing to benefit from the new Carbon Border Adjustment Mechanism (CBAM) taking effect in January 2026.

Reasons and Causes:* The strong North American performance was attributed to solid execution and capitalizing on a tight domestic supply environment. The optimism for future demand is supported by structural drivers like U.S. infrastructure investment, reshoring, energy projects, AI infrastructure, and addressing the housing shortage. The pullback in European imports and the anticipated CBAM impact are seen as catalysts for improved pricing and volume opportunities in Poland.

Key Theme:* Strategic Initiatives and Future Growth: - The TAG program delivered approximately $50 million of EBITDA in FY2025 and is expected to be a pivotal year for further momentum. It aims to drive permanent step-change improvements in margins, earnings, and ROIC through operational and commercial excellence. - The company is confident it will reach or exceed its goal of exiting FY2026 with an annualized run rate EBITDA benefit of $150 million. - The recent acquisitions of CPMP and Foley Products (closed in December) add a transformational precast concrete platform, broadening the commercial portfolio and creating meaningful value. Initial observations are positive, with strong backlogs and attractive average pricing.

Reasons and Causes:* The confidence in TAG's $150 million EBITDA goal is based on continued execution of operational initiatives (scrap optimization, mill yield) and new commercial rigor in margin capture. The acquisitions are aligned with the strategic priority to profitably grow the role in early-stage construction and become the preferred customer partner. The precast businesses are expected to contribute $165-$175 million of EBITDA in FY2026.

Key Theme:* Capital Structure and Financial Discipline: - As of November 30, cash, cash equivalents, and restricted cash totaled $3 billion. After closing the acquisitions, net leverage is approximately 2.5 times (using pro forma EBITDA), and the company remains confident in its ability to return to a target of below 2 times within 18 months. - Capital spending for FY2026 is anticipated to be approximately $625 million, with about $300 million for the Steel West Virginia mill and high-return growth investments. - The effective tax rate for FY2026 is anticipated to be between 5% and 10%, with no significant U.S. federal cash taxes expected in FY2026 or much of FY2027 due to tax credits and depreciation.

Reasons and Causes:* The strong liquidity position and confidence in deleveraging are aided by the cash flow generation from the new precast platform, the wind-down of capital expenditures for the West Virginia mill, and significant cash tax savings from the 48C program and other incentives. The company prioritizes deleveraging while maintaining strong liquidity (revolver up-sized to $1 billion).

Sentiment Analysis:

Overall Tone: Positive

• Peter Matt stated, 'CMC had an exceptional start to our fiscal year... The first quarter was one of the best in our company’s history, serving as validation that our ambitious strategy is bearing fruit.' He also expressed confidence: 'I am confident there is much more to come... I am even more confident regarding their potential to strengthen CMC and create meaningful value for shareholders.' The tone was optimistic about market conditions, strategic initiatives, and new acquisitions.

Q&A:

• Question from Satish Kasinathan (Bank of America): Based on what you have seen in the past three to five weeks since the closing of these acquisitions, can you maybe talk about some of the positive or negative surprises you have seen so far? And do you see any potential for acceleration of the three-year timeline to realize the announced $30-$40 million in synergies?
  Response: Management is very pleasantly surprised, noting strong cultural affinity and immediate excitement about collaborative opportunities. They are confident synergies are achievable, though it's too early to accelerate the original three-year timeline.

• Question from Satish Kasinathan (Bank of America): On the North American metal margins, which are currently at three-year highs, can you maybe talk about how you see this margin sustain or improve in the coming quarters given the context that we expect some new supply to come into the market?
  Response: Management is not overly concerned about new supply given current low import levels and expects Q2 steel product margins to be flattish. Long-term margin shape will depend on supply-demand dynamics and TAG initiatives, with a strong back half expected from pricing actions.

• Question from Katja Jancic (BMO Capital Markets): You expect seasonal volumes to be impacted by seasonality, but can you talk a little bit about what that actually means? Because it seems that so far we haven’t really seen a material impact from seasonality.
  Response: Management expects typical 5%-10% sequential decline in Q2 volumes due to winter construction slowdown, though Q1 volumes were stronger than expected.

• Question from Katja Jancic (BMO Capital Markets): On the West Virginia mill, can you update us what the plan, the ramp-up plan there is?
  Response: Hot commissioning is expected to begin in June 2026. It is a rebar-only mill, and management expects a typical 12-month ramp-up to full run rate post-startup, bringing it in on budget.

• Question from Tristan Gresser (BNP Paribas): The first one is on the old EBG division. If you can talk a little bit about the outlook for fiscal Q2, also more specifically, what kind of seasonality usually do you see on the precast business?
  Response: EBG (now Construction Solutions Group) experiences normal Q2 seasonality, with Tensar being most seasonal. The precast business is expected to contribute ~$30M EBITDA in Q2, lighter due to seasonality, but backlogs are strong.

• Question from Tristan Gresser (BNP Paribas): Going back to your report remarks on scrap sorting, how much of a benefit it’s been, and can you give us some numbers in what you’ve been doing and how has it changed today versus what you used to do in the past in terms of using less scrap and varying the quality of the scrap?
  Response: Scrap optimization, initially a $5-$10M opportunity, has grown substantially and contributed ~$50M in EBITDA last fiscal year. Benefits come from using lower-cost scrap blends and improving mill yield.

• Question from Alex Hacking (Citi): You mentioned increased commercial selectivity in rebar fab, and part of that was about reducing risk. Has counterparty risk been rising, and is there a reason why?
  Response: Counterparty risk has not been rising historically. The initiative aims to reduce risk by ensuring proper escalators and indexing in contracts to protect margins and return on capital.

• Question from Alex Hacking (Citi): On Europe, as you mentioned, importers have been getting ahead of CBAM. Do you have any idea how long, how many quarters it could take for prices in Europe to stop benefiting from CBAM?
  Response: CBAM took effect Jan 1, with potential EUR 50/ton impact on importers, playing out over calendar 2026. A substantial portion of benefit should be seen in Q3 and Q4, with the safeguard mechanism providing additional support mid-year.

• Question from Timna Tanners (Wells Fargo): You talked about the CBAM implications helping pricing, but I think another aspect of CBAM is that it helps domestic producers in Europe perhaps take some market share. So curious about what volume impact you might see there.
  Response: There may be some volume opportunity, but it's not huge currently given already good production rates in Poland.

• Question from Timna Tanners (Wells Fargo): On the U.S. side, if you look at the latest trade data, actually, imports are coming again from Turkey and from what I think Portugal and Spain. So just any thoughts on the Turkish side?
  Response: Imports from trade case countries have pulled back. Turkey has increased shipments, but overall imports remain low; management will monitor to ensure fair trade.

• Question from Bill Peterson (JPMorgan): I wanted to ask about AZ2, how the ramp has progressed, how the ramp progressed during the prior quarter, and what utilization you’re running at, and then how should we think about operations and utilization ahead.
  Response: AZ2 reached profitability in Q4 and Q1. Utilization exited last year at ~60%; full run rate expected during FY2026 but not at full capacity due to perfecting merchant specs, with continued profitability anticipated.

• Question from Bill Peterson (JPMorgan): Can you speak a bit more to the pricing profile of your downstream backlog and whether new order entry continues to be priced higher than what’s in the backlog?
  Response: New orders are being added to backlog at higher prices, continuing the trend, with demand remaining very solid.

• Question from Carlos De Alba (Morgan Stanley): Adding to the discussion on the new commercial approach in the fabrication business, how much of your business is already in this indexed format where you are able to maybe better protect your margins?
  Response: Indexed format is not a big percentage currently, with customer openness varying. The focus is on increasing indexation and enforcing escalators over time to reduce risk and improve margins.

• Question from Carlos De Alba (Morgan Stanley): What is the EBITDA margin that your 160-170 million EBITDA guidance for CSG represents? And would you say that this guidance, this EBITDA guidance, is somewhat conservative given that you’re just starting to take over those assets?
  Response: The 165-175M EBITDA guidance is for the precast business, not CSG. It is considered conservative due to integration adjustments, with existing business margins in high teens and precast in 30%-35%.

• Question from Mike Harris (Goldman Sachs): When I look at the tag program, I think last quarter, the expectation for the expected run rate annualized EBITDA benefit at the end of 2026 was greater than 150. And now you’re saying 150. So has that changed just a function of timing, or did you adjust your initiative list, or just being conservative?
  Response: The goal has been updated to $150M as clarity on opportunities evolved, proceeding more slowly to ensure sustainable, durable margin improvement.

• Question from Phil Gibbs (KeyBank Capital Markets): What is the typical seasonality of the North American business from a volume standpoint relative to Q1?
  Response: Typical seasonality is a 5%-10% sequential decline in Q2 volumes, weather-dependent.

• Question from Phil Gibbs (KeyBank Capital Markets): In terms of integrating just baseline depreciation, I’m assuming you’re going to have some write-ups associated with the precast deals. I think your baseline for D&A was like 70 or 75 million in Q1. So what should we be anticipating for Q2?
  Response: Management is not yet in a position to provide guidance on amortization for the precast acquisitions due to the complexity of purchase accounting.

Contradiction Point 1

Arizona II Mill Profitability Timeline

This is a direct contradiction regarding a key asset's financial performance milestone, impacting expectations for its contribution to future earnings.

How is the Arizona II ramp-up progressing, and what utilization is expected? - Bill Peterson (JPMorgan)

2026Q1: Arizona II reached profitability in Q4 and Q1. Utilization exited FY25 at ~60%; it will demonstrate a full run rate during FY26 but will not reach full optimal utilization... - Peter Matt(CEO)

What was the Q2 financial performance of the Arizona 2 mill? Will increased Q3 volumes result in positive EBITDA? - Sathish Kasinathan (Bank of America)

2025Q2: The Arizona 2 mill did not break even in Q2... The threshold is likely crossed in Q4, with continuous profitability expected into 2026. - Peter Matt(CEO)

Contradiction Point 2

Strategic Focus on Further Acquisitions

This represents a significant shift in corporate strategy from a declared "halt" on acquisitions to a more active, future-oriented pursuit of bolt-on deals.

Are new orders in downstream fabrication priced higher than existing backlog, and how do commercial discipline/TAG initiatives factor in? - Bill Peterson (JPMorgan)

2026Q1: ...focusing on integration. Once leverage is reduced to an acceptable range (~2x), they would look at additional transactions, starting with bolt-ons (which are cheaper and come with synergies) to build a national-scale platform. - Peter Matt(CEO)

With the recent acquisitions of Foley and CP&P, you now have significant scale in the precast concrete market. Will the focus over the next few years be on integrating these assets and reducing debt, or will you pursue further inorganic growth opportunities in a fragmented market? - Sathish Kasinathan (BofA Securities)

2025Q4: We are done with acquisitions for now, focusing on integration. - Peter Matt(CEO)

Contradiction Point 3

West Virginia Mill Startup Timeline and Progress

This involves a change in a specific project's launch timeline, a critical capital allocation decision point, and revenue contribution schedule.

What is the ramp-up plan for the West Virginia mill? - Katja Jancic (BMO Capital Markets)

2026Q1: Cold commissioning has started; hot commissioning (official startup) is likely in June 2026. The mill is a rebar-only facility, expected to ramp up over the following 12 months. - Peter Matt(CEO)

1) What is the current utilization of Arizona 2 and its target for next fiscal year? Is the facility currently breakeven? 2) What is the product mix (rebar vs. merchant bar) for next year? 3) Has the West Virginia mill's delayed startup (now summer 2026) been due to a weaker near-term outlook? Can you provide guidance on next fiscal year's CapEx? - Tristan Gresser (BNP Paribas)

2025Q3: The delay is **not** due to market conditions but to securing an **$80 million Investment Tax Credit** (from the IRA) and weather delays. **West Virginia start-up costs are largely back-end loaded** in fiscal 2026. - Peter Matt(CEO), Paul Lawrence(CFO)

Contradiction Point 4

North American Steel Products Volume Outlook

This shows a contradiction in forecasting sequential volume trends, a key operational metric for the core business, between quarters.

Can you explain the typical seasonality impact on volumes, but hasn't yet affected volumes? - Katja Jancic (BMO Capital Markets)

2026Q1: Q2 typically sees a 5%–10% sequential volume decline due to winter conditions. - Peter Matt(CEO)

1) What caused the ~7% sequential increase in North American steel product volumes vs. the typical 10-15%? Shipment timing or outages? 2) What are your expectations for Q4 volumes of steel and downstream products? - Sathish Kasinathan (Bank of America)

2025Q3: Finished steel shipments (combining steel products and downstream) are expected to be flattish to slightly up in Q4, following normal seasonal trends. - Peter Matt(CEO), Paul Lawrence(CFO)

Contradiction Point 5

Synergy Timeline and Quantification for Acquisitions

This point highlights a change in the communication of synergy realization timelines and specifics, moving from a concrete multi-year target to a more vague, near-term focus.

Have there been any positive or negative surprises since the CPMP and Foley acquisitions closed three to five weeks ago? Can the three-year timeline for $30–$40 million in synergies be accelerated? - Satish Kasinathan (Bank of America)

2026Q1: Confidence in achieving synergies is high, but accelerating the timeline is not yet speculate. - Peter Matt(CEO)

How soon can margins in CP&P, especially in recent acquisitions, reach the levels of Foley and the core CP&P business—within one or two years? - Carlos de Alba (Morgan Stanley)

2025Q4: The synergy improvement timeframe is 3–5 years, consistent with prior commentary... An extra $5–10M in annual EBITDA synergies is specific to the CP&P transaction, and the Foley deal adds $25–30M in synergies over 3–5 years. - Peter Matt(CEO)